IDEAS home Printed from https://ideas.repec.org/p/tut/cremwp/201207.html
   My bibliography  Save this paper

To Sponsor or Not to Sponsor: Sponsored Search Auctions with Organic Links

Author

Listed:
  • Michael Arnold

    (Alfred Lerner College of Business and Economics, University of Delaware, US)

  • Éric Darmon

    (University of Rennes 1 - CREM-CNRS, France)

  • Thierry Pénard

    (University of Rennes 1 - CREM-CNRS, France)

Abstract

In 2010 sponsored search advertisements generated over $12 billion in revenue for search engines in the US market and accounted for 46% of online advertising revenue. A substantial portion of this revenue was generated by the sale of search keywords using an auction mechanism. We analyze a game-theoretic model to understand the interplay between organic and sponsored links in keyword auctions. Our model allows both the relevance of the advertising firm as well as the position of its sponsored link to impact click-through-rates. Our results demonstrate how the presence of organic links (links generated by the search engine algorithm) may lead to either more or less aggressive bidding for sponsored link positions depending on consumer attitudes toward sponsored links and the extent to which sponsored and organic links are complements or substitutes. In contrast to equilibrium results in existing literature, the firm with the highest value per click does not necessarily win the first spot in the sponsored search listings. It also may be optimal for a firm to bid an amount greater than the expected value (or sale) from a click.

Suggested Citation

  • Michael Arnold & Éric Darmon & Thierry Pénard, 2012. "To Sponsor or Not to Sponsor: Sponsored Search Auctions with Organic Links," Economics Working Paper Archive (University of Rennes & University of Caen) 201207, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:201207
    as

    Download full text from publisher

    File URL: https://ged.univ-rennes1.fr/nuxeo/site/esupversions/51714844-d88c-4b48-a536-bb8a382c8e3d
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
    2. Song Yao & Carl F. Mela, 2011. "A Dynamic Model of Sponsored Search Advertising," Marketing Science, INFORMS, vol. 30(3), pages 447-468, 05-06.
    3. Zsolt Katona & Miklos Sarvary, 2010. "The Race for Sponsored Links: Bidding Patterns for Search Advertising," Marketing Science, INFORMS, vol. 29(2), pages 199-215, 03-04.
    4. Xiaoquan (Michael) Zhang & Juan Feng, 2011. "Cyclical Bid Adjustments in Search-Engine Advertising," Management Science, INFORMS, vol. 57(9), pages 1703-1719, February.
    5. Lesley Chiou & Catherine Tucker, 2012. "How Does the Use of Trademarks by Third-Party Sellers Affect Online Search?," Marketing Science, INFORMS, vol. 31(5), pages 819-837, September.
    6. Taylor, Greg, 2011. "The informativeness of on-line advertising," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 668-677.
    7. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
    8. Animesh Animesh & Vandana Ramachandran & Siva Viswanathan, 2010. "Research Note ---Quality Uncertainty and the Performance of Online Sponsored Search Markets: An Empirical Investigation," Information Systems Research, INFORMS, vol. 21(1), pages 190-201, March.
    9. Anindya Ghose & Sha Yang, 2009. "An Empirical Analysis of Search Engine Advertising: Sponsored Search in Electronic Markets," Management Science, INFORMS, vol. 55(10), pages 1605-1622, October.
    10. Sha Yang & Anindya Ghose, 2010. "Analyzing the Relationship Between Organic and Sponsored Search Advertising: Positive, Negative, or Zero Interdependence?," Marketing Science, INFORMS, vol. 29(4), pages 602-623, 07-08.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Greg Taylor, 2013. "Search Quality and Revenue Cannibalization by Competing Search Engines," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 445-467, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shengqi Ye & Goker Aydin & Shanshan Hu, 2015. "Sponsored Search Marketing: Dynamic Pricing and Advertising for an Online Retailer," Management Science, INFORMS, vol. 61(6), pages 1255-1274, June.
    2. Amin Sayedi & Kinshuk Jerath & Kannan Srinivasan, 2014. "Competitive Poaching in Sponsored Search Advertising and Its Strategic Impact on Traditional Advertising," Marketing Science, INFORMS, vol. 33(4), pages 586-608, July.
    3. Kinshuk Jerath & Liye Ma & Young-Hoon Park & Kannan Srinivasan, 2011. "A "Position Paradox" in Sponsored Search Auctions," Marketing Science, INFORMS, vol. 30(4), pages 612-627, July.
    4. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 115-129, March.
    5. Shijie Lu & Yi Zhu & Anthony Dukes, 2015. "Position Auctions with Budget Constraints: Implications for Advertisers and Publishers," Marketing Science, INFORMS, vol. 34(6), pages 897-905, November.
    6. Gauzente, Claire & Roy, Yves, 2012. "Message content in keyword campaigns, click behavior, and price-consciousness: A study of millennial consumers," Journal of Retailing and Consumer Services, Elsevier, vol. 19(1), pages 78-87.
    7. Ron Berman & Zsolt Katona, 2013. "The Role of Search Engine Optimization in Search Marketing," Marketing Science, INFORMS, vol. 32(4), pages 644-651, July.
    8. Ashish Agarwal & Kartik Hosanagar & Michael D. Smith, 2015. "Do Organic Results Help or Hurt Sponsored Search Performance?," Information Systems Research, INFORMS, vol. 26(4), pages 695-713, December.
    9. Andrey Simonov & Shawndra Hill, 2021. "Competitive Advertising on Brand Search: Traffic Stealing and Click Quality," Marketing Science, INFORMS, vol. 40(5), pages 923-945, September.
    10. Ashish Agarwal & Tridas Mukhopadhyay, 2016. "The Impact of Competing Ads on Click Performance in Sponsored Search," Information Systems Research, INFORMS, vol. 27(3), pages 538-557.
    11. Preyas S. Desai & Woochoel Shin & Richard Staelin, 2014. "The Company That You Keep: When to Buy a Competitor's Keyword," Marketing Science, INFORMS, vol. 33(4), pages 485-508, July.
    12. Nagpal, Mayank & Petersen, J. Andrew, 2021. "Keyword Selection Strategies in Search Engine Optimization: How Relevant is Relevance?," Journal of Retailing, Elsevier, vol. 97(4), pages 746-763.
    13. Raluca M. Ursu, 2018. "The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions," Marketing Science, INFORMS, vol. 37(4), pages 530-552, August.
    14. Sha Yang & Shijie Lu & Xianghua Lu, 2014. "Modeling Competition and Its Impact on Paid-Search Advertising," Marketing Science, INFORMS, vol. 33(1), pages 134-153, January.
    15. Bernd Skiera & Nadia Abou Nabout, 2013. "Practice Prize Paper ---PROSAD: A Bidding Decision Support System for Profit Optimizing Search Engine Advertising," Marketing Science, INFORMS, vol. 32(2), pages 213-220, March.
    16. Vibhanshu Abhishek & Kartik Hosanagar & Peter S. Fader, 2015. "Aggregation Bias in Sponsored Search Data: The Curse and the Cure," Marketing Science, INFORMS, vol. 34(1), pages 59-77, January.
    17. Przemys?aw Jeziorski & Sridhar Moorthy, 2018. "Advertiser Prominence Effects in Search Advertising," Management Science, INFORMS, vol. 64(3), pages 1365-1383, March.
    18. Klapdor, Sebastian & Anderl, Eva M. & von Wangenheim, Florian & Schumann, Jan H., 2014. "Finding the Right Words: The Influence of Keyword Characteristics on Performance of Paid Search Campaigns," Journal of Interactive Marketing, Elsevier, vol. 28(4), pages 285-301.
    19. Xiaomeng Du & Meng Su & Xiaoquan (Michael) Zhang & Xiaona Zheng, 2017. "Bidding for Multiple Keywords in Sponsored Search Advertising: Keyword Categories and Match Types," Information Systems Research, INFORMS, vol. 28(4), pages 711-722, December.
    20. Shijie Lu & Sha Yang, 2017. "Investigating the Spillover Effect of Keyword Market Entry in Sponsored Search Advertising," Marketing Science, INFORMS, vol. 36(6), pages 976-998, November.

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tut:cremwp:201207. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: GERMAIN Lucie (email available below). General contact details of provider: https://edirc.repec.org/data/crmrefr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.